Institutional investors influence private real estate – BizWest

0
54

[ad_1]

In my column last month, I outlined how builders and boomers are taking into account the housing shortage in our country.

To summarize:

In the aftermath of the Great Recession, builders were rushing to catch up after years of delayed housing construction. We have averaged 1.02 million launches per year since 2006, up from a historic average of 1.5 million launches per year since 1959. Now Freddie Mac tells us that we are facing a housing shortage of around 5 million homes, a number that confirms A recent study by NAR in conjunction with the Rosen Consulting Group found that we have rebuilt 5.5 to 6.8 million homes since 2001 countrywide.

While developers have ramped up their pace of construction over the past year, the high cost of materials and labor shortages make it unlikely that we can rely on builders to fill all housing shortages.

In fact, we need baby boomers (born between 1946 and 1964) to contribute more to our housing stock. Baby boomers own approximately 40% of single family homes in the country, a significant proportion of which are investment or rental properties. By encouraging baby boomers to sell some of these assets, we can make significant headway in freeing up inventory for potential young buyers.

But there is another influential factor in this supply and demand drama that needs our attention: the institutional investor.

Individual investors, often referred to as “family investors,” currently own the majority of the 17 million US single-family rental homes. In Northern Colorado, we certainly see a much higher ratio of family investors to institutional investors. At the national level, only 2-3% of single family homes are owned by institutional investors. But as house prices continue to rise across the country and locally, institutional investors see the potential for return on investment in the private home market.

As of the end of May, the median price for an existing single-family home nationwide was $ 356,600, up 24.4% from last year. Locally, markets such as Fort Collins, Loveland and Longmont are showing similar average price increases (see chart). Unsurprisingly, large institutional investors are taking notice of this, which means they are competing with existing and potential new homeowners.

We see many established and growing companies making instant offers at below market prices that provide convenience and value for consumers. But consumers might ask how these companies can make money using this model. After all, isn’t it risky to own a large real estate portfolio?

In fact, these investors see tremendous buying opportunities at bargain prices. They can own large pools of rental properties across the country in highly coveted markets, or even sell real estate books to new SFR (Single-Family Rental) companies. Many developers even build entire communities without planning to sell. They are building planned communities of detached single-family homes, realizing that the widening gap in affordability provides opportunities for high employment and good long-term foundations for growth in value and rental income.

In fact, real estate – and primarily single-family homes – has been and remains the strongest asset class. As more large institutional investors buy up single-family properties, coupled with community constraints on development growth, we see the imbalance between supply and demand widening. Rather than focusing on the demand side through incentives, policymakers need to turn to the supply side through capital gains tax credits for family investors or other tax incentives to encourage property turnover. Develop smart growth strategies that encourage, but don’t stop, responsible growth.

I would love to hear your thoughts and feedback on how to address some of the supply side economic issues.

Brandon Wells is President of The Group Inc. Real Estate, founded in Fort Collins in 1976 with six branches in Northern Colorado. He can be contacted at bwells@thegroupinc.com or 970-430-6463.

In my column last month, I outlined how builders and boomers are addressing the housing shortage in our country.

To summarize:

In the aftermath of the Great Recession, builders were in a hurry to catch up after years of delayed housing construction. Since 2006, we have averaged 1.02 million launches per year, up from a historic average of 1.5 million launches per year since 1959. Now Freddie Mac tells us that we are facing a housing shortage of around 5 million homes, a number that confirms A recent study by NAR in conjunction with the Rosen Consulting Group found that we have rebuilt 5.5 to 6.8 million homes since 2001 countrywide.

While developers have ramped up the pace of construction over the past year, the high cost of materials and labor shortages make it unlikely that we can rely on builders to fill all housing shortages.

In fact, we need baby boomers (born between 1946 and 1964) to contribute more to our housing stock. Baby boomers own approximately 40% of single family homes in the country, a significant proportion of which are investment or rental properties. By encouraging baby boomers to sell some of these assets, we can make significant headway in freeing up inventory for potential young buyers.

But there is another influential factor in this supply and demand drama that needs our attention: the institutional investor.

Individual investors, often referred to as “family investors,” currently own the majority of the 17 million US single-family rental homes. In Northern Colorado, we …

[ad_2]

Source link